Infrastructure Sector in India

June, 2014

Introduction

India's Planning Commission has projected an investment of US$ 1 trillion for the infrastructure sector during the 12th Five-Year Plan (2012–17), with 40 per cent of the funds coming from the country’s private sector. India's focus on infrastructure since the turn of the millennium has helped make it the second fastest growing economy in the world. The country’s constant growth gives investors, domestic and foreign, a tremendous opportunity for investment in its infrastructure sector.

While the role of foreign investment in the sector cannot be overstated, domestic companies too are making a mark abroad, as attested by Larsen & Toubro’s (L&T) contract for the Doha Metro project and GMR Infrastructure’s contract to upgrade the Philippines’ Mactan–Cebu International Airport.

A strong infrastructure sector is vital to the development of a country's economy. Here, the Indian government has played an important role. Just recently, it allowed 100 per cent foreign direct investment (FDI) under the automatic route for port development projects. The government has also, this year, decided to convert roads into national highways, and has sought collaboration with Sudan in the field of renewable energy.

Market Size

The value of total roads and bridges infrastructure in the country is projected to grow at a compound annual growth rate (CAGR) of 17.4 per cent over FY 12–17. India’s roads and bridges infrastructure, which was valued at US$ 6.9 billion in 2009, is expected to reach US$ 19.2 billion by 2017.

The total approximate earnings of the Indian Railways on originating basis during FY 13–14 were Rs 140,485.02 crore (US$ 23.34 billion) as against Rs 121,831.65 crore (US$ 20.25 billion) during FY 12–13.

The capacity of ports in India by the end of the 12th Five-Year Plan is targeted to touch 2,493.10 million tonnes per annum (MTPA) as compared to 1,245.30 MTPA at the end of the 11th Five-Year Plan (2007–12).

Investments

The FDI inflows in construction (infrastructure) activities during the period April 2000 – March 2014 stood at US$ 2,575.79 million, as per the data released by Department of Industrial Policy and Promotion (DIPP).

Recent months have witnessed key investments and developments in the India’s infrastructure sector, some of which are summarised below:

In the roads segment, Punj Lloyd has received a ‘Letter of Award’ for the construction of a 42 km, 2x3 lane dual carriageway project between Doraigh and Noubat Dokaim from the Ministry of Public Works and Highways, Yemen. The project, which is the company’s first major expressway project in the Middle East, is valued at Rs 1,270 crore (US$ 211.070485 million).

Similarly, IRB Infrastructure Developers has received a ‘Letter of Award’ from the National Highways Authority of India for four-laning the Yedeshi–Aurangabad section of NH-211. The estimated cost of the toll project, which totals to about 190 km, is Rs 3,200 crore (US$ 531.87 million) and it will be undertaken on design, build, finance operate and transfer basis.

In the railways segment, online railway ticket bookings grew almost three-fold to reach 14.02 million units in March 2014, a year-on-year growth of 286 per cent over March 2013, as per the monthly tracker of Internet and Mobile Association of India and IMRB.

In another development, Larsen & Toubro (L&T) received a Rs 4,510 crore (US$ 749.65 million) order from Qatar Railways Company in April 2014, for design and construction of the Gold Line of the Doha Metro project.

In the ports segment, Adani Ports and Special Economic Zone acquired Dhamra Port Company for Rs 5,500 crore (US$ 914.21 million) in May 2014. Dhamra Port is a major and newly developed port in Odisha’s Bhadrak district.

Also, Jawaharlal Nehru Port Trust (JNPT) and Port of Singapore Authority (PSA) signed a concession agreement for JNPT’s fourth container terminal, on May 6, 2014. The Rs 8,000 crore (US$ 1.32 billion) project is being funded through 100 per cent FDI and is PSA’s fourth project in India.

In the power segment, Bharat Heavy Electricals Ltd (BHEL) has commissioned a 160 megawatt (MW) gas-based power plant at Jaisalmer in Rajasthan for the state's power generation company. Rajasthan Rajya Vidyut Utpadan Nigam Ltd had placed the order on BHEL for setting up the power plant as an expansion of the existing Ramgarh power plant.

Also, Swelect Energy Systems has commissioned its 15 MW solar energy park set up with an investment of Rs 106 crore (US$ 17.61 million) near Vellakoil in Karur district. The company has already established over 1,500 rooftop projects across India.

In the aviation segment, GMR Infrastructure has received a contract to upgrade Mactan–Cebu International Airport in the Philippines. GMR and its partner, Philippine firm Megawide Construction will make an upfront concession payment of US$ 325 million and invest US$ 375 million over the next five years to construct a new terminal and improve the current one.

Government Initiatives

Some of the Indian government’s recent initiatives in the infrastructure sector are summarised below:

The Union Cabinet in February 2014 gave its approval for declaration of around 7,200 km of State Roads as new national highways. Other road development projects in the pipeline include existing national highways network totalling 21,271 km, which are not covered under any programmes/schemes as of now.

Also, in a move to enhance energy efficiency of the Indian Railways, a web-based Electrical Energy Management System, RAILSAVER, was inaugurated by Mr Kul Bhushan, Member Electrical, Railway Board, in April 2014. The portal will be used for tackling the challenges of global warming and sustainability of the environment.

In another development, the Indian government has facilitated 100 per cent FDI under the automatic route for port development projects. A 10-year tax holiday has been accorded to enterprises that are engaged in the business of developing, maintaining and operating ports, inland waterways and inland ports.

The country is also looking to collaborate with foreign partners. India and Sudan have good potential for enhancing cooperation in promoting renewable energy, as per Dr Farooq Abdullah, Union Minister of New and Renewable Energy, Government of India. The Minister has also offered Indian assistance for developing renewable energy resources in Sudan.

Roads

With India's rapid urbanisation and an ever-increasing middle class, the need for sound infrastructure is paramount. About 590 million people—the figure was 377 million in 2011—will reside in cities by 2030, and could have a direct bearing on 70 per cent of the country’s gross domestic product (GDP), as per a McKinsey report. Research from the Economist Intelligence Unit expects that infrastructure spending and the growth of the country’s lower middle class will prop GDP growth over the coming years, achieving 4.5 percent in 2014 and 5.7 percent by 2017.

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